An architectural rendering of the "midtown" project in Portland’s Bayside neighborhood. 2014 rendering by CBT Architects

The developer of the long-delayed “midtown” project in Portland’s Bayside neighborhood has applied for $4.3 million in tax credits from a state program that has been a target of criticism from regulators and legislators.

The Finance Authority of Maine is considering an application from an investment group seeking approval for a $10 million investment in a subsidiary of The Federated Cos., the Miami-based developer of the midtown project. Such an investment would trigger the release of nearly $4.3 million in taxpayer-financed tax credits.

The application is the first to test new rules adopted by the state agency that oversees the Maine New Markets Capital Investment program.

CityScape Capital Group, an investment company based in Princeton, New Jersey, submitted its application to the finance authority Nov. 6. The application is the first received since the authority’s board changed the New Markets program rules to prohibit use of the investments for refinancing old debt and the use of so-called “one-day” loans.

The program came under heavy regulatory and legislative scrutiny after a Maine Sunday Telegram examination in April revealed abuses of the tax credit program that cost state taxpayers millions. In its wake, the finance authority’s staff adopted new protocols to close loopholes in the program, which is intended to help businesses in low-income communities.

The authority’s staff has vetted CityScape’s proposed investment and is recommending that the agency approve it, according to a memo written by Christoper Roney, the authority’s general counsel. The memo describes midtown as a “mixed use” project in the Bayside neighborhood, and makes clear it is eligible under the program’s new rules.

“Of particular note, the transaction involves investment proceeds to be used for prospective costs only, and no refinancing of prior costs,” Roney wrote to the board. “The transaction does not involve a ‘one-day’ loan.”

TAX CREDIT APPLICATION ON HOLD

The authority’s board was expected to consider the application at its Nov. 19 meeting, but The Federated Cos. requested a postponement to consider the “suitability” of the New Markets program for the project. The next board meeting is scheduled for Dec. 17, but it’s unclear whether the application will be on the agenda.

“We inquired into the availability of New Markets Tax Credit financing, but have not yet made a determination regarding its suitability,” Patrick Venne, a spokesman for The Federated Cos., said Tuesday. “As a result, we have not completed the FAME application process whereby we would request approval of any such investment.”

Venne said Federated asked Cityscape and the finance authority to hold the application until the company can analyze its impact.

The Federated Cos.’ proposed $100 million midtown project would be built on 3.5 acres along Somerset Street between Pearl and Elm streets, a former industrial neighborhood next to Interstate 295 that has been home to rail yards, scrap yards and warehouses. The project would include 450 residential units, 840 parking spaces and 90,000 square feet of retail and commercial space, according to the application. The New Markets investment would specifically target the first phase of the project, a seven-story building with 38,000 square feet of retail space on the first floor and the 840-space parking garage on upper floors.

The midtown project has been delayed for five years, undergoing two redesigns and a lawsuit. The Federated Cos. reached a new agreement with the city in October that will allow the modified project to proceed.

“When complete, the project will be one of the most significant commercial real estate developments the Portland market has ever witnessed,” according to a summary of community benefits included in CityScape’s application to the finance authority. The summary estimated it would provide work for more than 300 construction workers and create 113 new retail jobs once complete.

The Maine Legislature created the New Markets program to attract investment in low-income communities by providing state tax credits to investors who put money into businesses in those communities. The credits are worth 39 percent of the total investment, payable over seven years. It’s modeled after the federal New Markets Tax Credit program, but unlike the federal program the Maine tax credits are refundable and can be redeemed for cash if the holder has no Maine income tax liability.

Low-income communities are deemed eligible if they have a poverty rate of at least 20 percent and a median family income of 80 percent or less of that area’s median family income. Portland’s Bayside neighborhood is eligible because it has a poverty rate of 47.3 percent and a median family income of 41 percent of the area’s median, according to CityScape’s application.

COMPLICATED MOVEMENT OF FUNDS

New Markets investment deals are complex. CityScape is not investing $10 million of its own funds in The Federated Cos. This deal includes five entities: a CityScape subsidiary, two Federated Cos. subsidiaries, and two subsidiaries of U.S. Bank.

Nearly $8.1 million of the $10 million total investment will have originated with The Federated Cos. itself. If the deal moves ahead as outlined, a Federated subsidiary, Federated Equities LLC, will lend $8.1 million to an investment fund operated by U.S. Bank, which will then bundle the Federated loan with nearly $2.9 million of its own cash and then lend that $10.95 million to a CityScape subsidiary. It’s that $10.95 million figure that the finance authority uses to determine the amount of tax credits that would be released to U.S. Bank as an equity investor (39 percent of $10.95 million is about $4.3 million).

CityScape is essentially just a middleman. After it receives the $10.95 million, it lends $10 million to another Federated subsidiary with the obscure name FEDEQ DV001 LLC. The application names this subsidiary as “the owner” of the first phase of the midtown project.

In the end, The Federated Cos. will have leveraged $8.1 million of its own money to receive $10 million, while U.S. Bank will have invested nearly $2.9 million up front for the promise of $4.3 million in taxpayer-funded tax credits over the next seven years.

For its part, CityScape receives a $950,000 fee off the top of the initial investment from the U.S. Bank investment fund.

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BruceLIbby

Is there anyone else who reads this and has a vision of a giant shell game of where’s the peanut?

Diebenkorn

More like three card monty – where’s the king of diamonds.

Miaskovsky

Can we bill this to Peter Monro and “The Soul?”

maineincrisis

An interesting addition to this article would be the estimated city property taxes generated by this development.

I’m not an expert but here is a back-of-the-napkin calculation:

450 apartments assessed at $150k each (probably a low estimate given the current market) would generate about $1.35 million per year at the current mill rate. That alone would recoup the taxpayers’ investment in under four years, which is not a bad rate of return.

Mefrfiter

Already have enough public money in the game here with parking garage, site cleanups, TIFS and who is going to loose the hard working taxpayers of Portland.

portlandarch

There is no TIF in this project I’m aware of, and certainly not more than one, and according to the most recent media reports the developer is handling the cleanup itself. . . .also, the taxpayers of Portland have revenue increase (increased commercial tax base) from this project. It’s the state that provides tax credits, and not to the developer to an outside investor in the project.

shooter777

Except all the new hotels, all the new condos built in Portland still resulted in property taxes increased 14% during the past 4 years! Haven’t seen any ‘recoup’ on that construction.

portlandarch

What you are seeing is a direct result of the City increasing its spending at a faster rate than taxable property development. Health insurance costs go up every year, but then again there is usually a lot of money that is spent on stuff the average person may not support and that too adds to the overall bottom line. Imagine what the increase would have been without the addition of new development to offset some of the increase.

Braindead Republican

That must be some of the new math.
The property taxes cover services used by the inhabitants. The city runs a, more or less, balanced budget every year.
It isn’t a “return”.

markusinger

The amount is fine until the every city department starts crying for more money to cover the new costs produced by this development.

portlandarch

This is not an entirely accurate article and the reporting is obviously biased against the program. The equity at the end of the day received by the development entity is a distilled amount compared to the total tax credits, and is leveraged by its own money (i.e., it’s not receiving $10 million and it’s not even receiving the total $4.3 million).

Whit Richardson

You accuse me of being inaccurate, yet don’t offer any examples of what you claim I got wrong in my reporting. I take my job seriously and strive to be fair in my reporting. Care to offer any specifics? I make clear in my article that $8.1M of the $10M originally comes from The Federate Cos. itself, and that it’s not Federated receiving the $4.3M in tax credits — U.S. Bank is the investor who would receive the credits.

SPLAX

I’m in the wrong business-and how might one wiggle their way into this financial mix?

So if FEDEQDV001 LLC is now the owner of a $100,000,000 project-who is left holding the bag if something goes wrong in this first phase? a $10 million leveraged,obscured name subsidiary?and would they still get the tax credit?

jay fulton

something could go wrong?

jbs01

Doesn’t the graphic in PPH use the pre “Keep Portland Livable” version of the development? I believe the subsequent redesign is different than what is depicted.

I question whether this project should receive additional tax payer funded support beyond what has already been provided via TIF, federal funds to build parking a parking garage. Seems like double or triple dipping to me.

Mefrfiter

Taxpayers might as well just building it with all the breaks they want.

portlandarch

There is no TIF in this project – is there? The City is contributing federal funds in exchange for a public garage without the hassle of managing it.

Mefrfiter

The site did get brown field cleanup money for the junkyards Federal money and more to help build the garage. Not a TIF but other sweet perks. No one seems to do anything without perks now. All money from our pockets no matter where it comes from.

NEPAexile

Another rich developer has his hands in my pocket, again!

AliceOfForethought

More corporate welfare while the teahadists are distracted by the poors committing vicious welfare fraud at 1%. LePage and the real rich are playing you temporarily inconvenienced millionaire/armchair constitutional scholar fools like violins while they steal the real money. Great work, Republican Party! Real progress here!

SPLAX

Check out BDN article on this topic.

Diebenkorn

“The city will still pay $9 million for construction of a parking garage and two-thirds of the $4 million cost to elevate Somerset Street above floodplain level.”

You can forget about recouping in under 4 yrs. The City is in deep on this one.

portlandarch

The City’s contribution, if you’ve read the media reports, is based on federal funding that was earmarked originally for construction of a parking garage to support overall neighborhood development. If you’ve followed this project you’ll know that the federal funds are being used to construct a parking garage and moreover one that is public.

Thistle

It’s very generous of Portland to put the rest of Maine’s taxpayers on the hook for a corporate welfare handout that benefits only Portland.

Where are all the protests over a tax dollar giveaway?

Leftist hypocrisy has no restraint.

jay fulton

Why is this a “leftist” thing? what’s the connection?

Braindead Republican

There isn’t one. He’s one of the droolers.

Thistle

The far left frequently denigrates “corporate welfare”.

The hypocrisy is that it is only some kinds of corporate welfare they have an issue with. Wind mills, solar panels (Solyndra, etc.), and tax credits for a private project in Maine’s most whacked out leftist city are fine.

Hypocrites.

blue__sun

to start, its the mid town developers looking for tax credits, the city has nothing to do with it. your other remarks are just as miss guided.

Thistle

Ah, I see. Money from Augusta, right? It does not count as corporate welfare.

Like I said, Portland has no scruples expecting the rest of Maine to fund their development.

Hypocrisy is rampant.

blue__sun

so Portland should order a private company not to ask the state for tax credits?
what other delusions do you have?

portlandarch

The City has not agreed to raise the grade level of the site. According to the most recent media reports the street is being raised by the City, and rightfully so. The developer is raising its own site and is contributing to the public street raising.

Braindead Republican

Well that’s a huge surprise. Who could have seen that coming?

anonmoose

More welfare for corporations that do not need or deserve it. This project has been in planning for years – it will go forward and be extremely profitable without any incentives. Obviously if our government offers corporations free money, they are obligated to take it.

markusinger

It is a swamp, that we know. Filling a swamp just sends the water elsewhere.